Macklin & Ors v Dowsett

A prima facie case of undue influence requires proof that the complainant reposed trust and confidence in the other party, or that the other party acquired ascendancy, and that the transaction was not readily explicable by their relationship. Neither misconduct nor disadvantage is a necessary ingredient.

“Manifest disadvantage” is a potentially misleading shorthand. The correct inquiry is whether the transaction calls for an explanation. A contractual relationship involving adverse interests does not preclude ascendancy and dependency where financial disparity and vulnerability to exploitation colour the parties’ relationship. A transaction exposing a vulnerable person to the loss of a valuable lifetime interest for a modest payment may satisfy the second requirement.

The defendant held a rent-free life tenancy of property which he had previously sold to the claimants. Shortly before planning permission for a new bungalow was due to lapse, the claimants paid for foundations to be laid. The parties then agreed that, unless the defendant completed the bungalow within three years, the claimants could require him to surrender his life tenancy for £5,000.

After the defendant failed to complete the bungalow, the claimants exercised the option and brought proceedings to enforce it. A Deputy Judge of the High Court rejected the defendant’s undue influence defence and held him bound by the agreement. The defendant appealed. The central issues were whether the claimants had acquired ascendancy over him and whether the option transaction called for explanation.

1. Appeal allowed unanimously. The defendant established both prerequisites for a prima facie case of undue influence. Auld LJ gave the principal judgment. Sedley and Jacob LJJ agreed.

2. The authoritative test in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44 has two elements. The complainant must show that trust and confidence was reposed in the other party, or that the other party acquired ascendancy. The complainant must also show that the transaction was not readily explicable by the parties’ relationship. These matters shift the evidential burden without requiring proof of misconduct or disadvantage.

3. The Deputy Judge applied the wrong second-stage test by asking whether the agreement was “manifestly disadvantageous”. That expression may obscure the proper inquiry. The question is whether the transaction calls for an explanation, although the extent of any disadvantage may affect the cogency of the explanation required.

4. The parties’ existing contractual relationship and adverse proprietary interests did not prevent a relationship of ascendancy and dependency from arising. Such a contractual relationship may be coloured by later circumstances. Here, the defendant lacked the means to preserve the planning permission or build the bungalow. The claimants knew of the disparity in bargaining position and of his vulnerability to exploitation. Those circumstances established the first requirement on a prima facie basis.

5. The option agreement also required explanation. The defendant converted an optional building project into an obligation whose non-performance exposed him to the loss of his rent-free home for life in return for only £5,000. His financial circumstances made timely completion of the bungalow unlikely. The preservation of planning permission benefited the claimants’ future interest, while the agreement gave them either an improved property or vacant possession for a modest payment.

6. Sedley LJ regarded the fundamental inequity of the option agreement as itself indicative of ascendancy and dependency. The appeal was allowed with costs in the Court of Appeal and below, subject to assessment. Permission to appeal was refused.

• Court of Appeal (Civil Division): In [2004] EWCA Civ 904, unanimously allowed the defendant’s appeal, holding that he had established both prerequisites for a prima facie case of undue influence.
• High Court, Chancery Division: Mr Jonathan Crow, sitting as a Deputy Judge, held on 20 November 2003 that the defendant was bound by the option agreement. No citation is stated.